MENA economy to shrink in 2026 before 6.5% rebound -BMI

BMI has pushed MENA recovery into 2027, projecting the region’s economy will contract in 2026 before rebounding next year. The Fitch Solutions research house said in a webinar attended by EnterpriseAM that it now sees regional GDP contracting 0.7% this year, then rebounding 6.5% in 2027, with almost all of that recovery resting on oil exports, which in turn depend on the reopening of the Strait of Hormuz.

The downgrade tracks a stickier Hormuz and a shift into what BMI calls “messy negotiations.” Washington has reimposed its naval blockade on Iranian ports, and Tehran has moved to shut the strait, through which roughly a fifth of the world’s seaborne oil and LNG normally passes. BMI has put its full-year oil forecast under review and lifted its working range for Brent to USD 80-95 a barrel in 2H 2026, up from the USD 70-80 it had penciled in under its “constructive” scenario. A sustained break above USD 90 would start to embed supply-shortage fears, BMI analysts said.

Even a diplomatic breakthrough buys months, not weeks. BMI expects a one-month test period, followed by at least six to 12 weeks of sustained calm, before tanker traffic returns to levels shippers consider commercially normal. Meanwhile, broader cargo vessels are expected to lag further behind.

What to watch: Oil market sentiment above all and the shape of any Hormuz charge. BMI expects Iran to push for fees on vessels using the strait but rates the chance of a permanent transit toll being widely accepted as low. More plausible is a services-fee structure tied to navigation, traffic management, and environmental protection — the Malacca Strait model — with Oman steering the GCC that way. One wrinkle they flagged is a US security-services fee on ships it escorts could end up normalizing Iran’s own demand for a fee.

The breakdown

The divide comes down to one thing: whether a country can get its exports out through an alternative to Hormuz, with the biggest pain concentrated in economies most dependent on the waterway.

In the contraction zone: Iraq’s economy is expected to shrink 8.5% as collapsing oil exports open a USD 30 bn fiscal gap, Qatar is expected to contract 7.2% as LNG exports remain stranded, and Kuwait is projected to fall by 8.1% as both oil and non-oil activity weaken. Bahrain is in the most vulnerable position, with BMI forecasting the deficit to widen to 8.5% of GDP and debt to exceed 150% as sectors accounting for about 85% of output come under pressure.

Countries with alternative export routes are projected to fare better. Saudi Arabia’s GDP is expected to grow around 1% in 2026 before accelerating to 6.8% in 2027, supported by its Red Sea export corridor and public investment — though disruption to that route from Yemen remains a key risk. Oman is expected to lead the GCC with 3.1% growth thanks to exports through Mina Al Fahl, which bypasses Hormuz, before moderating to 1.7% next year. Further afield, Egypt’s growth is tipped to hover near 5% as portfolio inflows recover, while Morocco is projected to stay above 4% on stronger agriculture and auto exports.

The UAE falls somewhere in between. While it has rerouted some crude exports through Fujairah, weakness in the non-oil economy is projected to leave growth broadly flat this year, which would mark its weakest performance since the pandemic. However, growth is expected to rebound by 11% in 2027 as oil output and trade recover. Like most of BMI’s 2027 forecasts, this recovery assumes Hormuz reopens, since a prolonged disruption would require another revision.

MARKETS THIS MORNING-

Asia-Pacific markets fell sharply in early trading this morning as escalating regional tensions pushed Brent crude prices up and cautious investors sat tight awaiting the upcoming wave of tech earnings. Japan’s Nikkei led regional losses, falling over 4%, and South Korea’s Kospi dropped 3.1%. Wall Street is set to open the first trading day of the week in the red, with major US index futures trading down.

THE CLOSING BELL-

The DFM fell 1.4% on Friday on turnover of AED 576.3 mn. The index is down 3.9% YTD.

In the green: Taaleem (+1.3%) and Tecom (+0.3%).

In the red: BHM Capital Financial Services (-4.7%), Emirates Reem Investments Company (-4.6%), and Drake & Scull International (-3.7%).

Over on the ADX, the index remained flat on turnover of AED 756.3 mn. Meanwhile, Nasdaq Dubai was down 0.8%.